PICTURE the scene: you’re at a dinner party with friends, the wine’s been flowing and halfway through the main course someone lets slip that he’s found a way to beat the system. Drink-driving may be illegal, but he’s found a way to do it without being caught.
Perhaps he’s identified a route home via back roads. Maybe he’s researched medications that produce false positives in road-side breathalyser tests, and stashed some in the glove compartment.
You and your dinner companions have a few options. You could hide his car keys, forcing him to take a taxi that night. You could wait until he gets behind the wheel and then call the police. Or you could simply respond to his revelation with horror, emphasising that his proposed action is immoral and dangerous. If he doesn’t listen or doesn’t care, you might want to reconsider your friendship.
What if we substitute tax-dodging for drink-driving? Your friend’s system-beating approach might involve failing to declare income, fiddling expenses, or finding a way to convert earnings into unearned income. It might involve setting up a “family business” with a nod and a wink and a single low-paid employee. Or exploiting a loophole or incentive scheme in a way the government never intended.
Would you be willing to risk starting an argument by saying you disapprove of tax-dodging all its forms?
Would this put you off your pudding? Would you be willing to risk starting an argument by saying you disapprove of tax-dodging all its forms? And that while big firms might have been caught doing it, two wrongs – or a few big wrongs and thousands of little ones – don’t make a right?
Sure, this time it wouldn’t be a matter of life and death – there’d be no need to get straight on the phone to HMRC – but unlike with drink-driving a negative a loss to society would be the ultimate intended outcome. When someone dodges tax they aren’t taking the risk that the public purse will be deprived of money – they are guaranteeing it.
Tax avoidance came up at the Scottish Parliament this week during a meeting of the economy committee to discuss the dry but important topic of economic data. The usefulness or otherwise of the GERS figures is, of course, crucial to the debate about Scotland’s long-term constitutional future, but access to reliable data is also essential when considering any changes to our tax system.
The question many are now asking is whether the majority of Scottish workers are willing to pay a little more
When Nicola Sturgeon announced her programme for government earlier this month, she sparked renewed debate about the possibility of an income tax rise north of the Border, using the new power devolved to the Scottish Parliament by the Smith Commission. The question many are now asking is whether the majority of Scottish workers are willing to pay a little more for well-resourced public services and universal benefits. But this is not, in fact, the key question. As economist Richard Murphy explained to the committee, we need to ask how effective a rate rise would be.
His answer was that it might not be very effective at all, because so many people would find ways to avoid paying the extra tax. While the average employee, taxed via the PAYE system, might feel the pinch of an increase, those with the option of turning earned income in a dividend – taxed at UK rates – would be able to dodge the hike altogether.
One way to address both this specific problem as well as many others is to significantly increase the scrutiny of businesses. It is difficult to speak meaningfully about “Scottish firms” when we don’t actually know who runs them or from where; when some of them are registered as having zero employees; and when 90 per cent of them don’t file profit-and-loss accounts.
The whole point of taxation is to raise revenue, so if enforcement action costs as much as it claws back, it becomes an exercise in futility
Massively increasingly scrutiny of businesses sounds expensive. And while clampdowns on accountants who help clients avoid tax are welcome, detecting such activity costs money too. The whole point of taxation is to raise revenue, so if enforcement action costs as much as it claws back, it becomes an exercise in futility. To return to the drink-driving analogy, police spot-checks and well-publicised seasonal crackdowns may play an important role, but they aren’t the only deterrent. The best way to reduce socially harmful behaviour is to make it socially unacceptable, and call out selfish actions that negatively impact us all. To make inclusion in our communities conditional on behaving like a human being, not a rational economic actor.
While tax avoidance of the kind that makes the headlines accounted for an estimated £2.2 billion of the “tax gap” for 2014-15, illegal tax evasion accounted for the much larger missing sum of £5.2bn. And that second figure doesn’t include the so-called “ghosts” and “moonlighters” who conceal entire income sources from HMRC – and therefore dodge an estimated £6.2bn of tax per year.
One only has to look across the water to Northern Ireland to see the havoc that can be wreaked by greedy people with no regard for the greater good. Yes, the Heat Incentive Scheme was a catastro-cock-up, and those who drafted it should be held to account, but those who opted to exploit it by heating empty barns – and continue to do so – should be named, shamed and ostracised until they cease.
Just because it’s possible to get away with dodging tax, or obtaining cash for ash, or drinking and driving, that doesn’t mean anyone should. Those who boast about getting away with doing so should be treated with the contempt they deserve.
A version of this article first appeared in The National.